Lufthansa (0H4A) SWOT Analysis / TOWS Matrix / MBA Resources
Airline
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Lufthansa (United Kingdom)
Based on various researches at Oak Spring University , Lufthansa is operating in a macro-environment that has been destablized by – increasing household debt because of falling income levels, wage bills are increasing, central banks are concerned over increasing inflation, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, challanges to central banks by blockchain based private currencies,
increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Lufthansa can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Lufthansa, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Lufthansa operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Lufthansa can be done for the following purposes –
1. Strategic planning of Lufthansa
2. Improving business portfolio management of Lufthansa
3. Assessing feasibility of the new initiative in United Kingdom
4. Making a Airline sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Lufthansa
Strengths of Lufthansa | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Lufthansa are -
Innovation driven organization
– Lufthansa is one of the most innovative firm in Airline sector.
Ability to recruit top talent
– Lufthansa is one of the leading players in the Airline industry in United Kingdom. It is in a position to attract the best talent available in United Kingdom. The firm has a robust talent identification program that helps in identifying the brightest.
High brand equity
– Lufthansa has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Lufthansa to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of Lufthansa in Airline industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Effective Research and Development (R&D)
– Lufthansa has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Lufthansa staying ahead in the Airline industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Digital Transformation in Airline industry
- digital transformation varies from industry to industry. For Lufthansa digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Lufthansa has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Learning organization
- Lufthansa is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Lufthansa is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Lufthansa emphasize – knowledge, initiative, and innovation.
Diverse revenue streams
– Lufthansa is present in almost all the verticals within the Airline industry. This has provided Lufthansa a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Sustainable margins compare to other players in Airline industry
– Lufthansa has clearly differentiated products in the market place. This has enabled Lufthansa to fetch slight price premium compare to the competitors in the Airline industry. The sustainable margins have also helped Lufthansa to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that Lufthansa has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Low bargaining power of suppliers
– Suppliers of Lufthansa in the Transportation sector have low bargaining power. Lufthansa has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Lufthansa to manage not only supply disruptions but also source products at highly competitive prices.
Organizational Resilience of Lufthansa
– The covid-19 pandemic has put organizational resilience at the centre of everthing Lufthansa does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses of Lufthansa | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Lufthansa are -
Compensation and incentives
– The revenue per employee of Lufthansa is just above the Airline industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High bargaining power of channel partners in Airline industry
– because of the regulatory requirements in United Kingdom, Lufthansa is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Airline industry.
No frontier risks strategy
– From the 10K / annual statement of Lufthansa, it seems that company is thinking out the frontier risks that can impact Airline industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High dependence on Lufthansa ‘s star products
– The top 2 products and services of Lufthansa still accounts for major business revenue. This dependence on star products in Airline industry has resulted into insufficient focus on developing new products, even though Lufthansa has relatively successful track record of launching new products.
Aligning sales with marketing
– From the outside it seems that Lufthansa needs to have more collaboration between its sales team and marketing team. Sales professionals in the Airline industry have deep experience in developing customer relationships. Marketing department at Lufthansa can leverage the sales team experience to cultivate customer relationships as Lufthansa is planning to shift buying processes online.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Lufthansa is slow explore the new channels of communication. These new channels of communication can help Lufthansa to provide better information regarding Airline products and services. It can also build an online community to further reach out to potential customers.
Ability to respond to the competition
– As the decision making is very deliberative at Lufthansa, in the dynamic environment of Airline industry it has struggled to respond to the nimble upstart competition. Lufthansa has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Lack of clear differentiation of Lufthansa products
– To increase the profitability and margins on the products, Lufthansa needs to provide more differentiated products than what it is currently offering in the marketplace.
High cash cycle compare to competitors
Lufthansa has a high cash cycle compare to other players in the Airline industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Interest costs
– Compare to the competition, Lufthansa has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Products dominated business model
– Even though Lufthansa has some of the most successful models in the Airline industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Lufthansa should strive to include more intangible value offerings along with its core products and services.
Lufthansa Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Lufthansa are -
Loyalty marketing
– Lufthansa has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Airline industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Lufthansa can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Lufthansa can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Creating value in data economy
– The success of analytics program of Lufthansa has opened avenues for new revenue streams for the organization in Airline industry. This can help Lufthansa to build a more holistic ecosystem for Lufthansa products in the Airline industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Building a culture of innovation
– managers at Lufthansa can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Airline industry.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Lufthansa in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Airline industry, and it will provide faster access to the consumers.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Airline industry, but it has also influenced the consumer preferences. Lufthansa can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Use of Bitcoin and other crypto currencies for transactions in Airline industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Lufthansa in the Airline industry. Now Lufthansa can target international markets with far fewer capital restrictions requirements than the existing system.
Learning at scale
– Online learning technologies has now opened space for Lufthansa to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Using analytics as competitive advantage
– Lufthansa has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Airline sector. This continuous investment in analytics has enabled Lufthansa to build a competitive advantage using analytics. The analytics driven competitive advantage can help Lufthansa to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Better consumer reach
– The expansion of the 5G network will help Lufthansa to increase its market reach. Lufthansa will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Lufthansa can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Manufacturing automation
– Lufthansa can use the latest technology developments to improve its manufacturing and designing process in Airline sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Developing new processes and practices
– Lufthansa can develop new processes and procedures in Airline industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Threats Lufthansa External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Lufthansa are -
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Lufthansa will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Airline industry are lowering. It can presents Lufthansa with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Airline sector.
High dependence on third party suppliers
– Lufthansa high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Lufthansa business can come under increasing regulations regarding data privacy, data security, etc.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Environmental challenges
– Lufthansa needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Lufthansa can take advantage of this fund but it will also bring new competitors in the Airline industry.
Regulatory challenges
– Lufthansa needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Airline industry regulations.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Lufthansa can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Lufthansa prominent markets.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Lufthansa may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Airline sector.
Technology acceleration in Forth Industrial Revolution
– Lufthansa has witnessed rapid integration of technology during Covid-19 in the Airline industry. As one of the leading players in the industry, Lufthansa needs to keep up with the evolution of technology in the Airline sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Lufthansa in the Airline sector and impact the bottomline of the organization.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Lufthansa needs to understand the core reasons impacting the Airline industry. This will help it in building a better workplace.
Stagnating economy with rate increase
– Lufthansa can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Airline industry.
Weighted SWOT Analysis of Lufthansa Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Lufthansa needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Lufthansa is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Lufthansa is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Lufthansa to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Lufthansa needs to make to build a sustainable competitive advantage.